Reflecting a trend among insurance firms in Asia, Axa Asia is moving to boost its exposure to alternative investments to 7-8% of its regional AUM and to raise its offshore allocation.
The firm’s aim is to diversify its portfolio and boost returns in the low-yield environment. At present the French insurer allocates around 1% ($120 million) of its $12 billion in life insurance general-account assets to hedge funds, infrastructure, private equity and real estate.
Its plans would increase that to as much as $800 million, roughly spread across property (4%), PE/infrastructure (2%) and hedge funds (1%).
It will take at least two years to reach that stage, says Arnaud Mounier*, Hong Kong-based regional chief investment officer at Axa Asia.
“When you invest in PE, the funds are drawn over time, so you need to commit to a few funds before you get the full exposure. It’s similar on the real estate side, because unless you’re investing in buildings in one block, the money will be invested over time.
“We started investing in alternatives two years ago,” he adds, “and it’s very much a work in progress.”
The increase in alternatives will come at the expense of the firm’s regional equities allocation, with the aim of being less exposed to equity volatility, notes Mounier.
“Three to four years ago we had a 20% allocation to stocks across the region, but now we are down to 15%, and I expect that to fall further as we move more into alternatives, particularly in Hong Kong but also Singapore.”
Hong Kong accounts for by far the biggest chunk of the regional life assets ($8 billion) and will account for the bulk of the alternatives investment. Axa also has life businesses in China, India, Indonesia, Malaysia, the Philippines, Singapore and Thailand.
The insurer will use the capabilities of the two fund houses it has existing relationships with, Axa Investment Managers and AllianceBernstein. Mounier says he will use Axa Private Equity and Axa Real Estate, as well as the hedge fund capability of Axa IM and AllianceBernstein.
Meanwhile, Axa plans to start diversifying the portfolio of its Thai life insurance business into foreign assets before the end of this year. All foreign investments made by insurers in Thailand must be 100% currency-hedged back to baht, so Axa has been busy building derivatives capability and getting the required documentation in place with a view to hedging FX risk.
“Asian bonds in US dollars could be interesting,” says Mounier. “Others in Thailand have [invested in] this already, like AIA [the country’s biggest insurer by AUM]. Our Thai operations started to be significant three years ago, so then we felt the need to find other alternatives to the local market.”
* See the upcoming (October) of AsianInvestor for a detailed Q&A with Arnaud Mounier.